China picking up bargains

January 13, 2015 09:15 AM

China is emerging a winner from the collapse in commodities prices to the lowest in 12 years as the world’s second-largest economy buys a record amount of raw materials.

Imports of crude, copper, iron ore and soybeans climbed to records in 2014 as prices tumbled, customs data showed today. The Bloomberg Commodity Index of 22 energy, agriculture and metal products slid to the lowest level since November 2002 today, after dropping 17% last year.

A rout in energy prices is leading commodities lower amid speculation supplies of raw materials from crude to copper are outpacing demand and as a stronger dollar diminishes their allure. China is seeking to benefit by boosting purchases and filling its stockpiles even as economic growth slows.

“China is taking advantage of an extensive slump in raw material prices to purchase from overseas, which is especially reflected in oil and iron ore,” Guo Chaohui, a Beijing-based analyst with China International Capital Corp., said by phone. “Potential stockpiling may have triggered a buying spree in products like copper and soybeans.”

The Bloomberg Commodity Index extended losses today, sliding 0.4% to 101.5192 at 1:10 p.m. in London. The measure tracks raw materials from London-traded Brent crude, the benchmark for more than half’s the world’s oil, to copper in New York and Kansas City wheat.

 

Oil Stockpiles

Brent tumbled 3.5% to $45.77 a barrel today, and touched the lowest in almost six years. It is down 60% from a peak in June last year as the Organization of Petroleum Exporting Countries resists calls to trim output amid the highest U.S. production in more than three decades. U.S. benchmark West Texas Intermediate slid below $45 a barrel for the first time since April 2009.

China’s overseas oil purchases increased 9.5% to 310 million metric tons last year, according to the data released today. December purchases were at 30.4 million tons, also an all-time high. That’s about 7.19 million barrels a day.

China National United Oil Co., a unit of the country’s biggest energy company known as Chinaoil, bought 47 cargoes on a Singapore trading platform to be delivered last month, according to data from Platts, which operates the system. That’s the equivalent of 23.5 million barrels.

“Record cargoes bought by Chinaoil in October seemed to have been unloaded and are helping imports shoot to a record,” said Amy Sun, a Guangzhou-based analyst at ICIS-C1 Energy, a Shanghai-based commodities researcher. “Meanwhile, the government is taking advantage of low prices to stockpile both commercial and strategic oil.”

 

Major Avenue

China Petroleum & Chemical Corp. and China National Offshore Oil Corp. together may fill two storage projects in the nation’s second phase of building emergency stockpiles during the first half of this year.

“What you see across a lot of the commodities is that you have very strong supply growth globally and that China has been a major avenue where that supply is getting channeled,” Ivan Szpakowski, an analyst at Citigroup Inc. in Hong Kong, said in by phone. “Some of the buying in China is definitely opportunistic.”

Iron ore imports totaled 932.5 million tons last year from 820.3 million tons in 2013, the customs data show. Shipments in December climbed 29% to 86.85 million tons from the month before. The steel-making ingredient collapsed 47% in 2014 as BHP Billiton Ltd., Rio Tinto Group and Vale SA raised low- cost production in Australia and Brazil, spurring a global glut.

 

Winter Purchases

Ore with 62% content delivered to Qingdao, China, lost 2.2% to $68.74 a dry ton today, according to Metal Bulletin Ltd. The benchmark dropped to a five-year low of $66.84 on Dec. 23.

Some mines in China are closed over the winter months, boosting mills’ reliance on stockpiles and imports, and separate data today showed a further drop in the reserves held at ports.

“With winter approaching, buyers were more willing to step up to the plate, especially given stockpiles had fallen materially,” Jeremy Sussman, an analyst at Clarkson Capital Markets LLC, said before the data were released. Imports will continue to grow in 2015, driven by higher steel output and a rise in low-cost seaborne supply, he said.

China’s imports or unwrought copper and products climbed 7.4% to a record 4.83 million tons in 2014, today’s data showed. About 1.6 million tons of new mine supply of the metal may come online in 2015, Bloomberg Intelligence said last month. The expected surplus is 522,000 tons, assuming a 4% growth rate, after an estimated 100,000-ton deficit in 2014, according to Bloomberg Intelligence.

 

Excess Supply

Soybean imports jumped 12.7% to 71.4 million tons last year, the customs data showed today.

Copper for delivery in three months on the London Metal Exchange slipped to as low as $5,832.75 a ton today, the weakest since October 2009, and has dropped 20% over the past year. March soybeans were at $10.235 a bushel, down 21% from a year ago.

China’s gross domestic product climbed 7.4% last year, the slowest expansion since 1990, economists project.

“It’s not the case that underlying demand in China has been great and that’s led to them wanting to buy a huge amount more,” Citigroup’s Szpakowski said. “It’s more a reflection of excess supply, prices are lower.”

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